Late last night the Department of Justice filed a case against rating agency Standard and Poor’s for allegedly defrauding investors by knowingly giving toxic mortgage backed securities positive ratings.
The government poured over 20 million S&P e-mails and instant message conversations to construct this case, and it’s attorney Floyd Abrams, of Cahill Gordon & Reindel who will have to answer for all of them in the company’s defence.
He started (publicly) this morning on CNBC.
Abrams’ argument against the government’s case is simple — S&P did not knowingly deceive investors because they actually believed their ratings.
“…the ratings that were issued were believed by the people that issued them,” he told CNBC’s David Faber. “The government has to show that S&P literally disbelieved their ratings.”
Abrams went on to say that it wasn’t just S&P that believed the housing market was solid, other ratings agencies did too (after all, two had to agree on a product’s rating for that rating to stick).
Not only that, but the Federal Reserve and then-Treasury Secretary Hank Paulson were bullish on housing as well, Abrams explained.
“The government read 20 million pages of e-mails and you the see best they could call out of it… an organisation trying to come up with answers when answers were hard to come by.”
Faber asked Abrams if the U.S. government may be going after S&P (and not other ratings agencies like Moody’s), because of S&P’s downgrade of the U.S. government’s bonds. It’s a sinister idea, and Abrams didn’t buy it… completely.
“Is it true that after the down-grade the intensity of this investigation increased? Yeah, but we don’t know why… certainly no on in government has come to me and said it.”
Pretty interesting stuff. If you’re waiting for the trial, though, it’ll be years away. In the meantime, Abrams will be trying to keep this case out of Court at all.
Watch the full video below: